Referrals, independence and sore thighs

I had a lot of time to think on Saturday. You see it was my first ultra-marathon; 50km of running around the beautiful New Forest with only the occasional herd of ponies for company. Following a week which included the game-changing Budget, it was nice to have some ‘head space’ out alone on the trails.

As it happens, I didn’t spend all that much time thinking about the Budget or pensions. I did spend a while mulling over the new FCA paper TR14/5 – Supervising investment advice: Delivering independent advice. Anything to distract the mind from the growing pain and discomfort in your legs as you tackle yet another hill.

This paper was published by the FCA as the second part of their three-stage thematic review which looks at how firms have implemented the RDR requirements. The paper didn’t tell us anything new, but did a good job of confirming the original requirements as well as providing examples of good and poor practice. We like it when the FCA provides these examples as they bring to life sometimes dull rules and principles.

One point which did leap out of the paper during an initial read last week – between digesting the Budget, moving a horse from one stables to another, keeping up with end of tax year client activity and deciding which running shorts were least likely to chafe my tender bits during a very long run – was about referrals to other advisers.

According to the doyens at Canary Wharf, referrals to others within the same firm risk independence. The FCA explained that where advisers are unable or unwilling to advise on certain Retail Investment Products (RIPs – regulatory acronym of the year, 2012), then these arrangements (referring to other advisers) would not meet the independence rule. This represents an interesting ruling for independent firms.

I suspect we are not alone here at Informed Choice in choosing to each focus on one or two specialist advice areas. We provide independent financial advice, and believe passionately in independence, but also believe that best advice is delivered by people with a really detailed understanding of the particular advice area.

For example, I focus my attention on funding care fees and trustee investments. My colleague Andrew, currently sat behind me and eating what smells like an epic lunch, specialises in Financial Planning (a service we call LifeWealth Design) and business financial planning. The other Financial Planners in the team each have their own specialist advice areas.

So at first we had a minor freak out when we read the FCA paper. Then we read it again. Then I ran with some New Forest ponies for nearly six hours and had some time to think about it properly.

Reading the paper again in more detail, it confirms that each adviser is expected to have sufficient knowledge of each product type to identify if it was potentially suitable for a client, as well as the knowledge and ability to carry out further work to identify a suitable product and make the recommendation, if appropriate. We do that through having robust and comprehensive training and competence plans, which result in each adviser carrying out CPD across the whole spectrum of RIPs.

This is also about systems and processes, I suspect. Our Financial Planners are prepared, willing and able to provide advice on all types of RIPs that may be suitable for our clients. Commercial reality resulting in us selecting the most appropriate Financial Planner for each new client does not compromise this independence.

What also became clear, (although not until this morning when the aches had finally subsided from my thighs) is that there is a still a massive disconnect between independent advice and independent product implementation. Hopefully this is something the regulator will address in the not too distant future, as advising independently on the whole range of RIPs is not necessarily the best definition of independent financial advice.

Independence is and should be about so much more than products. You can stop thinking about my thighs now.

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